November 1, 2021/CSL Research

UACN released its unaudited 9M 2021 result last week Friday. In its 9M results, the company reported a 23.5% y/y increase in Revenue to N71.4bn in 9M 2021 from N57.8bn in 9M 2020. On a q/q basis, the company reported a marginal topline growth of 1.6% q/q to N24.9bn in Q3 2021 from N24.5bn in Q2 2021. Notably, the company reported price increases on some of its products in a bid to pass on some of the increase in raw material costs to consumers. Interestingly, all segments drove the y/y topline growth in 9M 2021, a trend noticed since H1; Animal Feeds & Other Edibles (+13.7% y/y), Paints (+41.3% y/y), Packaged Food & Beverages (+39.4% y/y), QSR (+51.1% y/y) and Others (+18.9% y/y). Amidst the intense competition faced in its Paint business, the Revenue growth was impressive considering the weak performances recorded in prior times. Its Quick Service Restaurant (QSR) segment also grew significantly, up 51.1% y/y to N1.6bn.

Cost of Sales (adjusted for depreciation) rose stronger than Revenue, up 28.0% y/y to N57.7bn in 9M 2021 from N45.1bn in 9M 2020. Similarly, on a q/q basis, Cost of Sales growth grew higher than Revenue growth, up 2.0% y/y to N20.3bn in Q3 2021. Gross profit increased, up 7.3% y/y to N13.7bn in 9M 2021. On a q/q basis, Gross profit tapered, down 0.3% q/q to N4.6bn in Q3 2021. Gross margin contracted by 228bps y/y to 19.1% in 9M 2021 from 22.0% in 9M 2020.

Operating Expenses (adjusted for depreciation) was up 9.9% y/y to N10.0bn in 9M 2021 from N9.1bn in 9M 2020. The growth in Opex was driven by increase in Selling & Distribution Expenses (up 2.0% y/y to N4.4bn) and Administrative Expenses (up 16.9% y/y to N5.7bn). Growth in Administrative Expenses was largely driven by increase in Personnel Expenses (+12.9% y/y) resulting from the company’s focus at improving the quality of management personnel. As a result, EBITDA growth slowed, climbing higher by 1.6% y/y to N4.0bn in 9M 2021. Depreciation & Amortisation was down 2.9% y/y to N1.9bn in 9M 2021, positively impacting Operating Profit which increased by 6.0% y/y to N2.1bn in 9M 2021 from N2.0bn in 9M 2020.

The firm recorded a Net Finance Cost of N0.1bn in 9M 2021 from a Net Finance Income position of N0.3bn in 9M 2020. This was driven by a surge in Finance Cost (up 138.3% y/y to N1.1bn) despite a 16.6% y/y rise in Finance Income to N0.9bn in 9M 2021. The sudden increase in Finance Cost was driven by higher interest expense on bank loans (up 198.3% y/y to N1.0bn). Given the marked impact of the high Net Finance Cost coupled with a Loss of N0.6bn in Investment in Associates, UACN recorded a 44.3% y/y decline in Pre-Tax profit to N1.4bn in 9M 2021 from N2.5bn in 9M 2020. Profit from continuing operations also dipped, down 61.0% y/y to N0.6bn in 9M 2021 following additional pressure from higher effective tax rate 0f 59.0% in 9M 2021 from 41.4% in 9M 2020. In the same vein, the company reported Loss from discontinued operations of N2.1m in 9M 2021 compared with a Profit of N0.5bn in 9M 2020. Consequently, Profit for the year dipped by 70.4% y/y to N0.6bn in 9M 2021 from N1.9bn in 9M 2020. Meanwhile, loss attributable to equity holders was N89.7m in 9M 2021 compared to a Profit of N1.4bn in 9M 2020. As a result, Loss per share of N0.03/s in 9M 2021 compared to an EPS of N0.47/s in 9M 2020.

Our estimates and target price are under review. Current Price: N11.30/s

Source: Company data, CSL Research